Based on the analysis above, how would you comment on the business’s performance

Question

Based on the analysis above, how would you comment on the business’s performance and financial position from the viewpoint of a prospective small retail investor.

Thank you

2 1. Profitability Ratio 2016 2015 2. Efficiency (Activity) ratio 2016 2015 4a) Gross Profit Ratio a) Trade Receivable Turnover Gross Profit/Net Revenue of Operations x 100 Revenue from Operations/Trade Receivable Gross Profit Revenue GP Ratio 2,04,654.00 1,88,902.00 7,96,683.00 7,64,433.00 Revenue from Operations Trade Receivable Trade Receivable Turnover 7,96,683.00 7,64,433.00 1,81,582.00 1,72,880.00 4.42 25.69% 24.71% 4.39 10 b) Net Profit Ratio b) Net Assets Receivable Turnover - Revenue from Operations/ Capital employed Net Profit/Net Revenue of Operations x 100 Net Profit Revenue NP Ratio Revenue from Operations Capital Employed Net Assets Receivable Turnover 12 13 62,700.00 56,786.00 7,96,683.00 7,64,433.00 7.43% 7,96,683.00 7,64,433.00 2,64,016.00 2,62,507.00 2.91 7.87% 3.02 15 16 b) Return on Net Worth 17Profit before Interest and Tax/ Capital Employed x 100 18 19 20 4. Solvency Ratio 2016 2015 Profit before Interest and Tax Capital Employed RONW 75,626.00 66,485.00 2,64,016.00 2,62,507.00 a)Debt-Equity Ratio 28.64% 25.33% Not Applicable as no Debt in the Company 2015 22 2. Liquidity ratio 23 24 a) Current Ratio 25 Current Assets/Current Liabilities 26 27 28 29 30 b Quick Ratio 31Quick Assets/ Current Liabilities 2016 a) Proprietory Ratio Current Assets Current Liabilities Current Ratio 1,82,084.00 1,84,634.00 Shareholders Funds/Capital Employed (or net assets) Shareholders funds Capital Employed Proprietory Ratio 2,64,016.00 2,62507.00 2,64,016.00 2,62,507.00 1.00 329.00 361.00 553.45 511.45 1.00 Quick Assets (Current Stock-Inventoru- Prepaid Expenses) Current Liabilities Quick Ratio 1,82,084.00 329.00 553.45 1,84,634.00 361.00 511.45 34 35

Explanation / Answer

It may be seen that the revenue has increased in 2016 when compared with revenue in 2015, hence the company is in a good position and is growing. The Gross Profit Ratio and Net Profit Ratio have also increased in 2016 which depicts that the company is in a position where it is capable of increasing the profits also w.r.t. revenue. Return on Net Worth has also increased from last year. This ratio is of utmost importance from an investor's point of view as it shows the net result which an investor derives from his investments.

Current Assets Ratio and Quick Ratio is also favourable of the company.

Net Assets Receivable Ratio is also favourable as it shows that the revenue on the capital employed is also increasing, hence this company is very good for the small retail investor for investment purposes.

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